Average can be considered as mediocre by a large number of people. However in the areas of decision making, remarkably there have been a large number of instances where collective wisdom of the crowds have helped in churning out a better solution.
The premise of the book is that “ A group with enough diversity, Independence of opinion , Decentralization of the decision making and an aggregation of all the opinions will enable the group to take a much better decision than relying on the so called experts of the field.

Wisdom of Crowds by James Surowiecki dwells on the behavior of crowds and argues about the wisdom and pitfalls of the decision making capabilities. He argues against the common notion held by most of us that valuable information is held in a very few hands. In other words, groups need not be dominated by exceptionally intelligent people in order to be smart.

The premise and the arguments are presented for three type of problems which one comes across in our daily lives.

  • First are the Cognition Problems that have or will have definite solutions. How many copies of the new software will be sold ? What is the probability that a drug will be approved by FDA ? etc
  • Second are Coordination related problems i.e How to coordinate one’s behavior with respect to other, knowing that each person is trying to do the same. Examples include How do buyers and sellers find each other? How can you drive safely in traffic?
  • The third is the Cooperation problem where the challenge is to get self-interested, distrustful people to work together, even when narrow self-interest would dictate that no person should participate. Paying taxes, Dealing with pollution, etc are examples of Cooperation Problems

For any group involving decision making, it appears that diversity, independence and decentralization are the necessary attributes for a wise decision. In cases where any of the four attributes, there are problems that crop up like coordination problems, Aggregation Problems, Polarization, Information Cascade effect, Top – Down approach where the ground realities are never flown to the decision makers.

Diversity :
There are 2 important elements in the success of any economy. To solve the problems, there is a need for generating a lot of alternatives and subsequently winnowing the less optimal ones and pursuing the beneficial ones. The author argues that cognitive diversity of the groups in the decision making process saying that it is better to organize a set of diverse individuals who have varying degrees of knowledge and insight that to organize a few people who are extremely brilliant.
It also means that however an expert’s opinion one comes across, it is better to pool his opinion with others and extract a value from the collective wisdom.


Each person makes a decision based on “Private information” and “Public Information”. If every person takes a decision at a single point of time , based on his private and public information available, like the election polls , then a need of independence among voters , devoid of any coercing act from others would bring about a wise decision. In circumstances when the decision making of people are lagged, which happens to be most of the times, one pattern which is evident in these cases is the Information Cascade where the decision taken by the first few to a large extent has a considerable influence on the people who follow subsequently. Two examples mentioned by the author are Plank Road wave which hit the US in 1820 – 1840 and the standardization of screw across industries. Both are examples are information cascade, one resulting in a slate of bankrupt companies and other resulting in a beneficial effect to a lot of industries.

So,the pivotal question, is the information cascade good or bad? It is hard to come at one answer as the history is strewn with cases which have been good and bad. However, all said and done imitation of other’s decisions will happen and unless the group looks at the imitation and  tries to take it with a pinch of salt, in all probability the true information cascades will be beneficial

Linux is a terrific example of a system where decisions are taken by independent hackers sitting miles away and yet bringing out one of the finest operating systems in the world. For any group to be effective in decision making, the tenet of decentralization needs to be present. However without a proper system of aggregating the results of the decentralized opinions , it would be not work in a practical way. In the case of Linux, it was Linus torvalds himself. In other cases, there needs to be an effective system of aggregating opinions of all the people at one place. eBay is a classic example of one such system where the decisions of zillions of buyers and sellers are captured in a simple seller rating

Examples where the wisdom of crowds was demonstrated:

  1. Who wants to become a Millionaire – Audience always outperformed so called expert
  2. US Submarine Scorpion which was submerged in some anonymous place in the ocean was traced by a group which involved diverse set of people, asked to come up with independent decisions
  3. Challenger Disaster : Identifying one of the companies which was responsible for the failure , the manifestation of which can be seen in the severe stock beating
  4. Google : For every query , it is asking a crowd of pages on the net to estimate the importance of the pages on the net to display the results to the user
  5. Francis Galton witnessing weight – judging competition
  6. Hollywood Stock exchange which allows people to wager on the box-office returns, opening weekend performances, and Oscars.
  7. Iowa Electronics markets predicting the outcome of presidential elections

Some of the examples where there has been an absence / presence of wisdom of crowds attributes

  • Road traffic in USA : Failure to have a coordinated system for traffic movement
  • Academic research : Diversity combined with coordination is the only way for the community to come up with new discoveries and inventions
  • Working of Stock Markets
  • Working of Democracy

At the end of the book , the biggest take away for me was to look at problems from the perspective of cognition, coordination and cooperation present in a decision making problem